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The Education (Student Loans) (Repayment) (Amendment) Regulations 2011 in Great Britain and the Northern Ireland equivalent amend the governing 2009 Repayment Regulations in both legal jurisdictions.  These specify how the repayment threshold will be calculated up to the 2016/17 tax year.  From 2016/17, this threshold will be £17,495 per annum and, unless there are more Regulations introduced, this figure will remain unchanged.

However, this threshold applies to pre-September 2012 Income Contingent Student Loans.  These are known as Plan 1 Loans.  Loans taken out post-September 2012 in England and Wales have a higher threshold of £21,000.  Currently, these are repaid outside of the payroll directly to the Student Loans Company.  From April 2016, they will be calculated and repaid via deduction from the payroll.  So, simply, employers and payroll software will have to cope with two Plans:

  • Plan 1 with a threshold of £17,495 per annum
  • Plan 2 with a threshold of £21,000 per annum

This brings with it a number of questions for the employer, coupled with some procedural changes that they will need to take into account.  Some of these are clarified in HMRC’s August 2015 Employer Bulletin:

Can Plan 1 and Plan 2 Operate at the same time?

HMRC says employers will never be asked to operate the Plans concurrently.  Employers will either deduct a Plan 1 or a Plan 2 Loan and will not have to operate two thresholds in the same pay period.

How will I know which Plan to operate?

There are three ways in which the employer can be notified that they are to commence a Student Loan deduction in the payroll:

  1. The P45
  2. The SL1
  3. The Starter Checklist / Starter Declaration

Looking at these individually:

The P45

The P45 will not be amended.  According to HMRC, the reason that the P45 will not be amended is because of ‘spacing issues’ and no further changes will be made to the form.  To me, this does seem to be an indication on the demise of this form altogether.

Therefore, the P45 will only indicate to the new employer that the employee was repaying a Loan in their previous employment – it will not specify if this was a Plan 1 or Plan 2.  So, the employer should operate a Plan 1 Loan by default if they do not know otherwise.  The two ways in which the new employer might know otherwise is via the below two notification methods.

The SL1

Every time an employee changes from one PAYE reference to another, HMRC will send the SL1 Start Notice.  The form will also be sent if someone becomes liable to repay their Loan for the first time through the payroll.  This is the main way in which employers are notified to start a Loan deduction and, from tax year 2016/17, the SL1 will be amended so that it indicates which Plan type should be operated.

The Starter Checklist / Declaration

HMRC’s Starter Checklist will be amended to allow the employee starting without a P45 to indicate whether they have a Student Loan and, if they do, which Plan type it is.  If the employee is unsure, they can always contact the Student Loans Company (SLC) – this is not an employer function.  If the new employee cannot say which Plan type they have, the default for employers is Plan 1.  If this is incorrect, HMRC will be sending a SL1 anyway once the new employee information is sent on the first FPS.  If applicable, the Plan type can be amended.

What if I have chosen the wrong Plan type?

It could be that an employer has operated the default Plan 1, only for the employee to query on payday that their Loan deduction is higher than they were expecting.  What should the employer do?  In the first instance, I think it is important to say that the higher deduction would not be classed as ‘an unlawful deduction’ under the Employment Rights Act or Employment Rights Order in Northern Ireland.  However, it is an awkward situation and one that the legislation and HMRC regard as a correctable error if the over-deduction was in the current tax year.

Similarly, HMRC will expect the employer to recover any under-deduction from the employee if it is made in the current tax year, say if Plan 2 was operated rather than Plan 1.  Have a look at page at page 22 of the Employer Helpbook E17 to see what the employer should do to correct the situation.

Two Plan types give a greater opportunity for error and I think that this only highlights the importance of getting the Plan type right from day 1.

When do I stop a Loan Deduction? 

The SL2 is, currently, the only form by which HMRC will advise the employer to cease deductions.  The SL2 remains unchanged and will not detail Plan type on it.  However, the introduction of another Plan type means that there will be situations where HMRC wants:

  • Plan 1 Loan to be ceased and a Plan 2 Loan started (or, conversely, Plan 2 going to Plan 1), or
  • All Loans to be ceased

This gives rise to the need for a ‘change form’, i.e. changing from one Plan to another.  Does this mean another form?  No – HMRC are simply changing the capabilities of the SL1.  Considering that the payroll will only have one Plan type in operation at any one time, from tax year 2016/17, the SL1 and SL2 should be considered as having the following meanings:


This could be issued for the following reasons, bearing in mind that the SL1 will contain the Plan type of it from 2016/17:

  • Confirming a Loan Plan type for a new employee on the payroll
  • Starting a new Student Loan deduction
  • Changing from one Plan to another.  A SL2 will NOT be issued to cease a Plan type, merely, a SL1 will be issued detailing the Plan type.  For example, if the employee is on Plan 1 in the payroll and the SL1 has a start date and Plan 2 on it, this means that Plan 1 deductions should stop and Plan 2 deductions commence on or after the date on the form.


Will only be issued when HMRC wants the employer to cease Loan deductions, regardless of the Plan type.

Action Points for Employers

I think that it is important to say that the employer will want to get the Loan Plan correct from day 1 of the new employment – after all, if they apply a Plan 1 threshold to an ex-student who has a Plan 2 Loan, this will result in a higher SL deduction, because the threshold is lower.  Therefore:

  • Remember, if you don’t know what Plan type, the default is Plan 1
  • As well as asking for the P45, will employers also want to ask every new employee ‘have you got a Student Loan that you need to repay and, if so, what Plan type?’
  • Note that the Starter Checklist declaration and the SL1 information overrides what is on the P45.  So, if the P45 arrives late, employers should not change a Plan 2 notification to a Plan 1
  • There will be a new Starter Checklist in due course on the Gov.UK Website.  However, many employers use their own variations of this on new starter forms.  This will need to be updated
  • Check that your payroll software has been updated and that you know where you will have to indicate the Plan types.  Note that this information may be required in the payroll system but the Plan type is not included as a new field on the FPS
  • The SL1 form will contain the Plan type on it from 2016/17.  It can be regarded as a confirmation form (for a new employee), a start form (for someone already on the payroll but not paying a Loan) or a change form (for someone going from one Plan to another)
  • The SL2 will not change its format and, from 2016/17, means stop any Student Loan deduction, regardless of Plan type

Look out for the E17 guidance to be updated in due course.  HMRC have advised that they will provide updates in their Employer Bulletins.

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